Narrowing the Definition of White-Collar Crimes

Law is often about figuring out what a particular word or phrase means, as with President Bill Clinton’s now-famous reply about his relationship with Monica Lewinsky: “It depends on what the meaning of the word ‘is’ is.”

The Supreme Court engaged in similar mental gymnastics last week in Yates v. United States when it concluded that the term “tangible object” did not include a fish, thus allowing for reversal of a conviction for obstructing a federal investigation.

The court’s decision is part of a trend to more narrowly interpret statutes used to prosecute white-collar crimes. The message is that the government should be careful in how aggressively it tries to apply provisions that carry heavy punishments to defendants who pose little threat to the public’s physical safety.

Mr. Yates was a fishing boat captain caught with a number of red groupers, a fish in high demand in restaurants, that were shorter than the 20-inch limit imposed by federal regulations at the time.The undersize fish were set aside for his return to port. But when he arrived, the offending fish had been thrown overboard.

Nearly three years later, Mr. Yates was charged with violating an obstruction of justice statute, 18 U.S.C. § 1519, that had been enacted as part of the Sarbanes-Oxley Act in 2002. The law was intended to make it easier to convict defendants who destroy documents before an investigation begins, much like the accounting firm Arthur Andersen was accused of doing when Enron started to collapse in 2001.The firm’s conviction was later overturned because of a faulty jury instruction on intent, but that came long after its demise.

Section 1519 makes it a crime to alter or destroy “any record, document, or tangible object” in order to impede or obstruct a government inquiry or action. A conviction can result in imprisonment for up to 20 years, a hefty punishment for Mr. Yates’s infraction that involved little more than throwing undersize fish overboard. Indeed, the government changed its regulations after the violation to permit taking smaller red groupers.

The case presented the Supreme Court with the challenge of deciding how far a law adopted to deal with one type of harm — obstructing an investigation of financial fraud — should be applied to conduct that bears no clear connection to the original purpose behind the statute.The court recognizes that laws evolve to reach new circumstances. But it has been hesitant to let a broadly worded provision reach something far removed from the misconduct that Congress had in mind when enacting the law.

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Justice Ruth Bader Ginsburg has taken a narrow approach to interpreting federal criminal laws in several cases.CreditManuel Balce Ceneta/Associated Press

The problem facing the court was to find a way to say that a “tangible object” really does not mean every physical thing. A plurality of the justices, in an opinion by Justice Ruth Bader Ginsburg, reversed the conviction by limiting the scope of § 1519, explaining that “in law as in life, however, the same words, placed in different contexts, sometimes mean different things.” Her opinion looked to the title of the statute and its placement with other provisions involving the destruction of records to conclude that “tangible object” was limited to “objects used to record or preserve information.” She also cited a principle known as the “rule of lenity” that favors a narrow reading of laws to ensure that there is fair warning about when conduct crosses the line into criminality.

Justice Samuel A. Alito Jr. joined the ruling to create a majority, taking account of the meaning of “tangible object” in relation to a record and document to find that “a fish does not spring to mind — nor does an antelope, a colonial farmhouse, a hydrofoil, or an oil derrick.”

This is not the first time that Justice Ginsburg has taken a narrow approach to interpreting federal criminal laws and restricted the Justice Department’s ability to push into new areas. In Skilling v. United States, she wrote that the majority opinion that limited the “right of honest services” theory of mail and wire fraud to cases involving the payment of bribes and kickbacks and not conduct that only breached a fiduciary duty. In Ratzlaf v. United States, her opinion interpreted a provision of the currency reporting law to require proof that the defendant specifically intend to violate the law, not just that such a result was likely when buying a number of cashier’s checks from casinos for less than $10,000 each.

With § 1519 limited to tangible objects that contain information, the question is whether prosecutors can still use it in cases that do not involve accounting fraud and similar types of financial misconduct. In United States v. Russell, a lawyer who destroyed a laptop containing child pornography was prosecuted for not turning it over to investigators. Although the laptop is a means to store information, the conduct has nothing to do with the type of fraud that motivated Congress to enact the Sarbanes-Oxley Act. So a court may dismiss such a charge after the Supreme Court’s narrow reading of the law.

The Yates opinion is a warning to federal prosecutors to be careful about taking an aggressive approach that pushes the law into new territory. Recent prosecutions of insider trading involving the tipping of confidential information are one area in which the Supreme Court may be looking to cut back on the scope of the law if the right case comes before it.

Last November, Justice Antonin Scalia questioned whether the Securities and Exchange Commission’s broad interpretation of what can constitute insider trading deserved any deference from the federal courts. In United States v. Newman, the United States Court of Appeals for the Second Circuit criticized the United States attorney’s office in Manhattan for “the doctrinal novelty of its recent insider trading prosecutions” in reversing the conviction of two hedge fund managers. The Justice Department could ask the Supreme Court to review the case if it is unable to persuade the appeals court to reconsider its decision. But that may be a questionable strategy if the justices are seeking to cut down on expansive applications of the law.

The Supreme Court’s concern with pushing the envelope in criminal prosecutions will encourage defendants to argue that applying criminal laws outside their usual context is impermissible. Defendants like Mr. Yates present a sympathetic portrait of the law being misused when the punishment is severe for something as seemingly trivial as a few fish thrown overboard.